Solutions 4 Financial Independence: 08/02/18

Published: Jul. 31, 2018 at 7:19 AM EDT
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Question: I have heard you say life cash value life insurance is not a good investment. Can you please clarify why?

Answer (John Halterman, Beacon Wealth Management): “The first thing you have to understand is permanent life insurance. It is all about the need to replace income, or potentially the need to pay estate taxes. So life insurance’s original intentions are for replacement of need. That’s what you have to understand first.”

Question: Is there a savings component that could potentially be beneficial?

Answer (John Halterman, Beacon Wealth Management): “There absolutely is. You have probably heard me say that whole life insurance is not a good investment. The reason why I say whole life insurance is not a good investment is because it is so expensive.

The internal cost of insurance is at its very max so when someone is giving your whole life for your retirement, it is like putting your money into a CD paying 1%. So the problem is that the savings rate is not very high.

I will say, we use cash value life insurance that is overfunded universal life, where you can put more cash in it to overfund it where more of the money can go towards the actual investment component. If you do that, then absolutely it could be something positive.

But whole life insurance, just not down with that because it wouldn’t make sense to put your CD in your retirement plan so why would you do that?”